The proposal would impose upon theinternal operations of the WisconsinHigher Education Corporation (WHEC), acorporation organized under Chapter 181of the Wisconsin Statutes, certainrestrictions that would not be imposedupon any other Chapter 181 corporationin this state.

While undoubtedly WHEC would be the onlycorporation presently affected by thelegislation and while the proponents of theproposal unquestionably are motivated by adesire to better oversee WHEC specifically(the legislative history refers exclusivelyto WHEC), the proposed legislation nowherementions WHEC; rather, it applies to a classof nonstock corporations defined as "publicpurpose corporations," of which class,conceptually, WHEC is but one member.

To defeat the proposed legislation, anopponent would have to demonstrate beyond areasonable doubt that it is repugnant to anexpress provision of the constitution; theconflict must be "clear and irreconcilable."

The legislature shall provide generallaws for the transaction of any businessthat may be prohibited by Sectionthirty-one of this article, andall such laws shall be uniformin their operation throughout the state.

The proposed legislation grants nopowers or privileges to public purposecorporations; rather, it imposesregulations upon them.[2]

The simple response to your first question,therefore, is that the Legislature's proposalis outside the clear and explicit words ofthe constitutional provisions, so that evenif it were to be construed as a special orprivate law, it is not the kind of special orprivate law prohibited by the constitution.

Assuming, nevertheless, that theLegislature's proposal were to beconstrued as granting corporate powersor privileges, it still is not prohibitedby article IV,Sections 31 and 32 of theWisconsin Constitution.

(2) of commanding the public service commission to obtain further information;

(3) of having the governor command any officer, agent, or employee of the
state to give assistance or advice; and

(4) of having the secretary of state audit certain of its accounts . . . violate [d] Section 31, Article IV. . .

Id. at 194. The court stated:

It is only a privilege inhering in thecorporate charter as part of thecorporation's organic act thatis within the provision inSection 31, art. IV, Wis.Const., prohibiting thegranting of corporatepowers or privilegesby special act.

In In re Southern Wisconsin Power Company,supra, the court said, with reference toa franchise to construct a dam (p. 257):

While the franchise here granted was a legislative grant, it was not a corporate power or privilege within the meaning of Section 31, art. IV, of the constitution.

If such a franchise were granted to a corporation it would become its property, but would not be essential to its corporate existence.

The clause prohibiting the granting
of corporate powers or privileges simply prohibits the grant of corporate charters by special act.

A franchise is not essentially corporate, and it is not the grant
of a franchise that is prohibited by the constitution, but the grant of a corporate franchise.

It follows that if in any of the aboverespects any power whatever was vested in theWisconsin Development Authority the power wasnot a corporate power in the sense referredto in the constitutional provision.

Id. at 195.

The proposed regulations are no moreprivileges inhering in any corporation'scharter as part of the corporation'sorganic act than were the provisionsenacted with respect to the WisconsinDevelopment Authority.

Assuming that the proposed legislation wasdeemed to confer powers or privileges andwas deemed to be part of the corporation'scharter, it still is not constitutionallyprohibited.

In my opinion, it is not special nor privateand, even if it is deemed to be so, theLegislature can properly single out forregulation entities like WHEC.

As already stated, nothing in AB 85 mentionsWHEC. Chapter 181, a general law governingnonstock corporations, would be amended toprovide for a class of nonstock corporationsknown as "public purpose corporations."

All of the proposed regulations would applyto this class.

While WHEC presently is the only existingcorporation organized under chapter 181 tooperate a guaranteed student loan program,the fact that at the time of a particularenactment applicable to a class, there isonly one member thereof, does not militateagainst the validity of the legislation.

Adams v. The City of Beloit and others,105 Wis. 363,81 N.W. 869 (1900);

Thus, as far as state law is concerned,the public purpose corporation is aconceptually valid classification.

It does not "preclude addition to the membersincluded within" it, State ex rel. Risch v.Trustees, 121 Wis. 44, 54, 98 N.W. 957(1904), and thus is not a closed class.[4]

One might contend that only one guaranteeentity in each state is contemplated by thefederal laws governing the guaranteed studentloan program, such that, even if promoterscould organize a competing corporation understate law and could find lenders with whom todo business, the federal government would notcontract with the competing corporationbecause one guarantor already wasoperating in that state.

I find no legal supportfor such a contention.

The statutes and rules governing theessential provisions of the federalguaranteed student loan program guaranteepayments, advances for reserve funds,interest subsidy payments, payments ofadministrative costs all contemplate thepossibility of multiple non-governmentalguarantee entities within a single state.

Public purpose corporations are conceivedas guarantors of loans to post-secondarystudents under a federal program providingfor interest subsidies, special financialinducements to lenders, reserve fundsubsidies and, most significantly,federal reinsurance.

No other class of corporations possessesthese characteristics.

While there is no statement of legislativepurpose in the proposal, the legislativehistory amply reveals that the classificationis germane to the purpose of the legislation.

The purpose of the legislation, as distinctfrom the motive to regulate WHEC, appears tobe the improvement of legislative oversightover entities providing student loaninsurance.

The proposed classification, embracing WHECand any other entity like WHEC, is germane tothat purpose, since it (the classification)contains the essential characteristics ofWHEC and any other entity which mightcome to exist.

The classification is not basedonly on existing circumstances.

As already observed, a classification isvalid even though only one memberpresently exists as long as otherscan aspire to membership.

At any time, another corporation like WHECcould come into being and become a publicpurpose corporation subject to thesame special regulation as WHEC.

Finally, the proposed legislation clearlyapplies equally to each member of the class;all public purpose corporations are subjectto all of the requirements of the proposal.

Even if one or more of the four criteria fora valid classification were deemed to havebeen violated, and, therefore, the proposedlegislation were deemed to apply only toWHEC, it is still constitutional.

If the Legislature chose to, it couldregulate WHEC by name and not createspecial or private legislationcontrary to the constitution.

In reaching this conclusion, I have had toreevaluate an earlier formal opinion whichconcluded that "the Legislature could notsingle out [WHEC] for special enactmentsconcerning its internal affairs. . . . .

72 Op. Att'y Gen. 135, 138 (1983).

This conclusion was based upon perceiveddistinctions between WHEC and other "privatecorporations" on the one hand, and publicauthorities, such as the Wisconsin Housingand Economic Development Authority, on theother hand.

After reviewing the supreme court'spronouncements regarding legislative controlover entities specially created outside thegovernment to carry out a public purpose,including corporations, and in light ofrecent dramatic changes in the relationshipbetween the state and WHEC, I have concludedthat WHEC can be regulated by particularlegislation applying to it alone, as long asother constitutional provisions are observed.

The state has the power to create separateentities designed to indirectly carry on apublic purpose which the state cannot carryon because of constitutional restrictions.

The State Historical Society, now denominatedboth a "body politic and corporate" and "anofficial agency and trustee of the state,"Section 44.01(1), was chartered speciallyby the Legislature in 1853[10] as acorporation and was reorganized acentury later by the societyitself under chapter 181.

42 Op. Att'y Gen. 333 (1953).

The State Medical Society, was speciallychartered by the Legislature in 1841, butlater given "the general powers of acorporation."

Of importance in Barczak and Giessel, was thefact that the corporations were organizedunder general corporation laws.

WHEC was organized under chapter 181,a general corporation law.

The proposed regulations are amendmentsto that general law and so are valid.

In Nusbaum and Earl, the authorities were notorganized under general corporation lawsbut the legislation was still upheld.

Art. IV, Section 31, Wisconsin Constitution,was not meant to deny the legislature theauthority to grant limited corporate powersto the entities it creates to promote apublic and state purpose.

Chapter 234, Stats., does not involve thepromotion of private or local interests,as condemned by the framers of Section 31,but a legitimate governmental and statewidepurpose as declared by the legislature.

Chapter 234 is not objectionable as either aspecial or private law.

Nusbaum, 59 Wis.2d at 448.

In Nusbaum this court held that the HousingFinance Authority was created in order topromote public and state purposes rather thanprivate or local interests and, therefore,the Housing Finance Authority Act did notcontravene these constitutional provisions.

We agree that Nusbaum is controlling here,since the Recycling Authority, no lessthan the Housing Finance Authority,involves a legitimate governmentaland statewide purpose, rather thana special or private purpose.

"The purpose of Article IV, Section 31 is to insure that legislation will promote the general welfare and further statewide interests, as opposed to private concerns."

La Follette v. Reuter, 36 Wis.2d at 113.

WHEC, no less than the housing authority andthe recycling authority, involves alegitimate governmental and statewide purpose the provision of a guaranteed student loanprogram rather than a special or privatepurpose.

The proposed legislation, therefore, isconstitutional under Nusbaum and Earl.

Other private but governmentally-createdcorporations have balked at legislativecontrol in the past.

In State Medical Society, the society astate-chartered corporation tried toconvert its WPS division into a chapter 611domestic insurance corporation.

The decision of the court is strong authorityfor the Legislature's right to regulatespecial corporations.

The society was incorporated in the year1841 pursuant to Laws of 1841,Bill No. 53, ch. 2, Section 1.

Later statutes contained provisionsfor SMS to be continued with thegeneral powers of a corporation.

It finds little distinction in being anonprofit association, holding a charterfrom the state and being cloaked withthe general powers of a corporation.

Whatever the number of entities which mightbe found to exist under each category,suffice it to say, that it is a rareorganization that possesses all threeattributes plus a history of statutoryenactments reaffirming its existenceand granting it special powers. . .

There is no basis . . . for SMS todeny that it is unique and chargedwith a public interest.

State Medical Society,70 Wis.2d at 147-48, 149.

Further authority for the Legislature's rightto control corporations exercising publicpurposes is found in

Thomson v. Giessel, 265 Wis. 185.

The claim there was that turnpikecorporations, organized by the State TurnpikeCommission, were themselves state agenciesbecause routes had to be approved by thehighway commission and the Governorand that when their bonds were retiredthe roads would become state property.

The legislature has declared that the purpose to be served by the construction of the toll road is a public purpose.

It is only proper that its construction be subject to the approval of the state highway commission and the governor.

Thomson v. Giessel, 265 Wis. at 196.

Other precedents exist for legislativeregulation of particular state-createdcorporations.

Just as board membership of public purposecorporations would be regulated by theproposed legislation, the members of theboards of the Wisconsin University BuildingCorporation and the Wisconsin PublicBroadcasting Foundation arelimited by statute.

Bareis, 257 Wis. at 501;Section 39.12 (4), Stats.

In State ex rel. Warren v. Reuter,44 Wis.2d 201, 216,170 N.W.2d 790 (1969), the court found notonly a right, but a duty to regulate privatecorporations receiving public funds:

The question of reasonable regulations forcontrol and accountability to secure thepublic interest is one of degree anddepends upon the purposes, the agencyand the surrounding circumstances.

Only such control and accountability as isreasonably necessary under the circumstancesto attain the public purpose is required.

Budgeting and auditing are, of course, basicand necessary controls; additional types ofcontrol vary with the demands or requirementsof the circumstances.

What would be sufficient control for dailyoperations may not serve for capitalimprovements and vice versa.

What controls may be necessary for an agencyto be formed may not be necessary for anagency which has been operating for manyyears and has established an acceptablepolicy and is under regulations andcontrol of other governmental bodies.

Likewise, controls which are sufficient todayfor this appropriation may not be sufficienttomorrow under different circumstances.

I understand that WHEC receives no publicfunds except as consideration forservices rendered.

In addition to the state's general interestin promoting public well-being by regulatinggovernmentally-created corporations, thestate has a particular relationship with WHECby virtue of the language of Section 39.33and WHEC's relationship with HEAB and thestudent loan revenue obligation bond program.

Under Section 39.33(1), HEAB was authorizedto organize and "maintain" a guaranteecorporation.

Thus, the state has the responsibilityto see that WHEC remains in existence.

It is reasonable to conclude that the dutyto maintain WHEC carries with it a right,if not a duty, to regulate its affairs thatwould not necessarily exist with respect tojust any corporation.

Another particular aspect of the state srelationship with WHEC provides a reasonablebasis for the proposed legislation.

The state has issued $215,000,000 of StudentLoan Revenue Obligation Bonds to finance itsoperations as a lender under the guaranteedstudent loan program.

All loans made with bond proceedshave been guaranteed by WHEC.

The board and WHEC are parties to theCorporation Reserve Agreement, setting outcertain rights and obligations by bothparties to secure the integrity of thebonds and the program itself.

As long as any bonds are outstanding,the state has a special interestin the operations of WHEC.

Finally, throughout its history, WHEC hasin other ways played a unique role in theperformance of the state's duties underthe guaranteed student loan program,[12]justifying more precise legislative oversightthan might otherwise be the case.

HEAB has statutory authority to furnishadministrative services to WHEC.

Section 39.33, Stats.

By contract, the state has obligateditself to do so.

This obligation is a covenantwith bondholders.

Thus, by virtue of its responsibilities tobondholders, the state is intimatelyconcerned in the operations of WHEC.

In recent months WHEC's relationship with thestate has become even more intimate.

I understand that, by contract, WHEC nowprovides administrative services to HEAB,including the servicing of loansmade by private lenders.

By assuming the responsibility ofadministering the lender servicing programone of HEAB'S major statutoryresponsibilities, Section 39.33(10)[13]WHEC has subjected itself to a reasonabledegree of legislative control.

Your letter also asks whether the proposedlegislation affects the state's covenantsunder the student loan revenue obligationbond program (the "Program").

In my opinion, it does not.

In the State Building Commission resolutioncreating the Program (the "Resolution"), thestate covenanted with bondholders that aslong as any bonds issued to finance theProgram are outstanding and unpaid, thestate will not limit or alter its powers tofulfill the terms of any agreements withbondholders or in any way impair therights and remedies of bondholders.

A similar pledge is contained in Section18.61(1) with respect to revenueobligation programs generally.

The Resolution also contains a covenant thatthe state will maintain and enforce acontract between the state and WHEC knownas the Corporation Reserve Agreement andtake no action in connection therewithwhich in any manner will adverselyaffect the rights of bondholders.

Among other provisions, the CorporationReserve Agreement obligates the state toprovide administrative services to WHECas long as any bonds are outstanding.

These covenants are protected againstimpairment by the contract clauses ofthe state and federal constitutions.

The proposed legislation does not, however,transform WHEC into a state agency.

The supreme court has repeatedly held thatdummy corporations are not state agencies.

E.g.,

Thomson v. Giessel 265 Wis. at 196;

Thomson v. Giessel,267 Wis. at 340;

Bareies,257 Wis. at 501;

Nusbaum, 59 Wis.2d at 424.

There is historical precedent for regulationsof governmentally-created entities like thatproposed by AB 85.

The Wisconsin Federal Surplus PropertyDevelopment Corporation had to report to thestate Department of Resource Development.

Herro, 42 Wis.2d at 95.

State turnpike corporations had to seekroute approval from the Legislatureand the Governor.

Thomson v. Giessel, 265 Wis. at 198.

The members and officers of the WisconsinUniversity Building Corporation had to be

persons who [held] certain offices in the administrative structure of the university.

Bareis, 257 Wis. at 501.

The membership of the board of thecorporation organized by the EducationalCommunications Board is statutorilyrestricted and the corporation must submitto an examination of its records by theEducational Communications Board, theDepartment of Administration,the Legislative Fiscal Bureau and theLegislative Audit Bureau, among others.

Section 39.12(3) and (4), Stats.

Similar restrictions are part of the lawsgoverning Wisconsin Housing and EconomicDevelopment Authority and the Bradley CenterSports and Entertainment Corporation.

I have no fear that WHEC would be construedas a state agency in light of thesehistorical precedents.

If the closeness of WHEC's relationshipto the state were a problem.

WHEC was closest when the bonds were issued;until recently, WHEC's board was the HEABboard. For most of its existence.

WHEC had no employes, but, rather, was ashell, with legal independence from the statebut practical dependence upon the state forthe performance of its functions.

Even after the proposed legislation, WHECwill be more of a separate creature than atthe time the bonds were issued.

If separation from the state were importantto bondholders, they may be benefitted,rather than injured, by WHEC's newrelationship with the state.

If we are going to recognize that . . . dummycorporations are separate and distinct fromthe state, then it must be determined thatthe property owned by the dummy corporationis not the state's property. . . . Thelegislature, as well as the public, musttreat the dummy corporation as a distinctentity.

Herro, 42 Wis.2d at 116.

One might well question why the Legislaturewould allow HEAB, a state agency over whichit has complete authority, to contract awayits program responsibilities to WHEC, aprivate corporation over which it hasless authority, and then try to regulateWHEC, rather than attempt to achievethe same results by regulating HEAB.

Constitutionally, however, the Legislature,in this case at least, has the power to takeeither course, the proposed regulations beingreasonably related to the purpose sought tobe achieved and properly drawn to achievethat purpose.

Subsequent to your request, on July 15, 1985,Assembly Bill 85 was enacted into law as1985 Wisconsin Act 29.

The provisions in question were vetoed.

Since the veto is subject to override,this opinion refers to the provisions inquestion as the "proposed legislation"or the "proposal" References are to theEngrossed Bill, dated June 14, 1985.

[2]

Arguably, public purpose corporations arealready subject to legislative audit one ofthe proposed requirements, by operation ofSection 181.27(2), which allows the state,for good cause, to petition the circuitcourt for access to the books andrecords of any chapter 181 corporation.

[3]

Proposed Section 181.79 would be read as anexception to Section 181.03 which prohibitsthe organization under chapter 181 ofinsurance corporations.

[4]

Risch involved a challenge to a legislativeclassification on equal protection grounds.

There is no reason to believe that theprinciple stated would not apply toclassifications challenged underarticle IV, Sections 31 and 32of the Wisconsin Constitution.

[5]

To be eligible to participate in thefederal program private guarantorsmust be nonprofit.

[6]

American authorizes trace their ancestry tothe Port of London Authority, which was sonamed because Lloyd George did not want touse such common names as commission,"board" or agency.

Having observed that each Section ofthe draft enabling act began "Authority ishereby given . . .," he suggested the name"Port of London Authority" Cohen, TheyBuilded Better Than They Knew 290 (1946).

[7]

The Bradley Center Sports and EntertainmentCorporation is subject to state audit andhas a board of directors appointed by theGovernor two of the regulations theproposed legislation would imposeon public purpose corporations.

[8]

This corporation is subject to state auditand board membership is regulated twocontrols sought to be placed uponpublic purpose corporations.

Section 39 12. Stats.

[9]

On the local level, Milwaukee Countyorganized the Milwaukee County IndustrialDevelopment Corporation.

State ex rel. Bowman v. Barczak,34 Wis.2d 57,148 N W 2d 683 (1967).

[10]

This was prior to the 1871 constitutionalamendment creating the prohibitionsagainst specific legislation.

[11]

WHEC receives other benefits from the state:it enjoys a virtual monopoly by dintor its creation by HEAB.

This opinion is not the vehicle for judgingthe propriety of a state agency apparentlycontracting away the entire operationof a statutory program.

Nevertheless, it is appropriate to questionwhether the Department of Administration'sauthority to "contract for services whichcan be performed more economically orefficiently by . . . contract,"Section 16.705(1). extends this far.

It is also appropriate to raise whetherloan servicing is within the scope ofWHEC's authority under its Articlesof Incorporation, which states asthe corporation's purpose,

What has been stated with respect to theconstitutional prohibition against special orprivate legislation leads to the conclusionthat the proposed legislation is alsovalid under due process and equal protectionprinciples See discussion of

State ex rel. Risch v. Trusteesat page 174 hereof.

The State's authority to regulate publicpurpose corporations in the manner proposedderives from the police power.

The police power is not limited toregulations designed to promote publichealth, public morals or public safety,or to the suppression of what is offensivedisorderly, or unsanitary, but extends toso dealing with conditions which exist asto bring out of them the greatest welfareof the people by promoting public convenienceor personal prosperity.